- At the outset, the Union Government under the leadership of Prime Minister Narendra Modi has been known to be pushing ahead with the digitalization efforts over the last eight years or so. Most positive results are out there in the open as countrymen have wholeheartedly embraced the information technology-driven initiatives with great aplomb. More and more citizens opting for the digital medium to transact financial necessities have yielded heartening results. Such an open acknowledgement of the digitalization moves has assured the Union Government to press ahead with the next level of initiatives. With the dynamic technology majorly succeeding in plugging the loose ends, there is an anticipation for even more reforms on the financial front.
PC: PRADEEP CHAKRABORTY
- In one such move, the Reserve Bank of India last week issued a concept note on the central bank digital currency (CBDC) by mentioning that a pilot project will soon be launched for specific use cases. We all know how the global community is increasingly adopting digital means for their day-to-day functioning. Moreover, there’s been a notable change in the global environment for digital currencies as well since the budget. Of course, private cryptocurrencies have been shown to lack characteristics such as stability in value. Effectively, it means they can never be a threat to currency issued by a central bank. Nonetheless, caution is rightfully called for. RBI seems, correctly, disinclined to make a hasty transition to CBDC.
- Mind you, the central bank leans towards a design quite similar to the current system with physical banknotes. RBI’s approach aims to complement and not replace the existing system. Thus, CBDC is defined as an instrument that can be exchanged on a par with physical currency. This is a smart approach as it will avoid any chance of disruption. Public faith in the legal tender is the very foundation of a monetary system that must be guarded come what may. For the uninitiated, a CBDC is the existence of currency in digital form. And India’s rapid evolution to an inclusive digital payments system has almost brought us there – it’s an achievement that has evoked global interest. Indians are already experiencing the core benefits of CBDC through digital payments.
PC: Varinder Singh
- Consequently, RBI’s caution and open-mindedness when it comes to designing the digital rupee make imminent sense. Note that about 10 countries, beginning with the Bahamas in 2020, have launched a CBDC. Among major economies, China and South Korea have launched pilots. However, RBI’s concept note points out that the potential impact of CBDCs on monetary policy is still unclear. As experts suggest, a CBDC will work best in India if it’s interoperable with the existing payments system. Most importantly, digital currencies adopted by major economies must be stable with seamless flow through a global payments system. This is still quite far in the future. For now, RBI’s caution is the best approach.
